Renewable Energy April 2017

April 05, 2017

The cost of solar power has touched a new low-tariff reached Rs 3.15 per unit on April 11, surpassing the earlier lowest of Rs 3.30 per unit achieved in Rewa Solar Park (RSP) in February 2017. One of the reasons is the benchmark set by the RSP, which forced the developers to quote low

So what makes the Rewa Solar Park a success?.

While RSP’s tariff average is not the lowest, it stands a close second, costing Rs 3.30 per unit. The park’s tariff for the first year of operation was Rs 2.97 per unit, the least ever in the country. The low tariff rate was achieved without using viability gap funding, a form of capital subsidy bridging between project costs as per the market and the developer’s quotation.

The project-developed by Rewa Ultra Mega Solar Limited (RUMSL)-is a joint venture between Solar Energy Corporation of India and Madhya Pradesh Urja Vikas Nigam. It is the first project in the country to have electricity procurersfrom different categories, namely Delhi Metro Rail Corporation (DMRC) and Madhya Pradesh Power Management Corporation Ltd (MPPMCL). The two stakeholders signed a power purchase agreement (PPA) on April 17.

In another first, the project received subsidies from Clean Technology Fund (CTF), an international fund for low carbon technologies. It offers three-tier payment security mechanism to developers: letter of credit, payment security fund and MP government guarantee.

“There has been an optimum distribution of risk between the procurers, developers and RUMSL, leading to better tariff. Usually in most government contracting, including for procurement of solar power, contracts are structured such that the government bears minimum risk and all uncertainties are left to the supplier/developer, who loads the same on to the cost. For Rewa, the project structuring was done as per global standards,” said Manu Srivastava, managing director, Madhya Pradesh UrjaVikas Nigam Limited.

Payment security mechanism To reduce financial risk for the suppliers as well as the intermediary power procurer, the project has set up a new payment mechanism. RUMSL provides letter of credit for one month’s payment, a payment security fund along with the MP state government guarantee for delay in payments by MPPMCL, the electricity procurer accounts for 78 per cent of power sold. A letter of credit is a document from a bank that guarantees payment. If MPPCL fails to pays the developer, the bank that issued a letter of credit has to pay instead. For the remaining 22 per cent of power, DMRC has to provide only for a Letter of Credit, the amount is equivalent to 1.25 times the average two month’s billing.

Deemed generation The erratic unavailability of evacuation infrastructure, curtailment and backing down instructions by state load dispatch centre results in higher risk for developers. To contain their losses, RUMSL compensates for grid unavailability beyond 50 hours (during generation hours between 6 AM to 6 PM) which can also be due to backing down instructions from RegionalLoad Dispatch Centre.

Availing subsidies

The project location was chosen such that the land-related charges were low. Further, grants from multiple sources helped bring down the park cost. Internal evacuation infrastructure was kept inexpensive using MNRE grant under the solar park scheme, and a World Bank loan, 25 per centof which is a super-concessional loan from Clean Technology Fund, available at interest rate of 0.25 per cent. Rewa is the only solar park in the country to avail loans from theWorld Bank and CTF.

Change in law Developers fix tariff considering the prevailing tax scenario, but any change in tax rates or laws is difficult to foresee. The “change in law” clause covers the impact that any sudden change in fiscal and monetary policies might have in the tariff quoted at the time of bidding. For instance, the clause will allow adjusting to the changes made in Goods and Services Tax (GST) law.

Termination compensation Clarity on consequences of early termination of the contract is needed so developers and their financiers can protect their investments. Thus, in case of termination due to default by any entity, RUMSL provides an option for suitable termination compensation to the suffering entity, thus relieving it from the after-effects to the extent of a combination of debt due, equity investment insurance covers. Such a provision has been made in case of Rewa project for the first time in Indian renewable energy sector.

The Rewa solar park’s arrangement benefits both developer and procurer, thus, creating a new benchmark for solar power projects in the country. Taking a cue from this, the government now wants to follow the RSP model for solar as well as wind tenders across the country.

New draft guidelines on wind power procurement released by Ministry of New and Renewable Energy, give some respite to wind developers, who have suffered revenue losses due to unavailability of grid and payment delays from distribution companies. The guidelines have introduced a payment security mechanism that guarantees a partial compensation to wind power developers even if power is not transmitted to the grid.

Installed capacity of renewable energy has touched the 2,000-gigawatt-milestone in 2016, with an unprecedented installation of 161.02 GW during the year. According to the data released by International Renewable Energy Agency (IRENA) in their report Renewable Capacity Statistics 2017 last week, the record increase in installation can be attributed largely to increase in solar capacity across the globe.

Report Mini-grids: Electricity for All To facilitate the implementation of the national mini-grid policy, the report explains a business model which recommends finding alternate ways to finance mini-grids. It proposes bringing mini-grids under regulation and support projects through feed-in tariff (FiT) or generation-based incentive (GBI).

Solar Calculator

Online Solar Calculator The calculator is a single page application specifically designed for domestic houses, which has a huge untapped market for solar power in the country. It takes less than 5 minutes to estimate the cost and size of the rooftop solar plant.

Join Our Team

With the growing work and priorities in CSE, the Renewable Energy Team is expanding and we are looking for passionate and motivated individuals to join our programme.